We report magnetic manipulation of non-magnetic particles suspended in diluted ferrofluid. Diamagnetic particles were introduced into a circular chamber to study the extent of their deflection under the effect of a non-uniform magnetic field of a permanent magnet. Since the ferrofluid is a paramagnetic medium, it also experiences a bulk magnetic force that in turn induces a secondary flow opposing the main hydrodynamic flow. Sheath flow rate, particle size, and magnetic field strength were varied to examine this complex behaviour. The combined effect of negative magnetophoresis and magnetically induced secondary flow leads to various operation regimes, which can potentially find applications in separation, trapping and mixing of diamagnetic particles such as cells in a microfluidic system.